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Editorial: Biotech success won't come easy

If you are a biotech stock investor, you have probably realized that you are in a market awash with a lot of good news these days. But investors should be cautious, as the sector is also rife with risk.

Shares in the biotech sector surged 9.3 percent last week on the Taiwan Stock Exchange, compared with a 3.08 percent increase on the benchmark TAIEX.

Virtually every week over the past month, positive news was released to assure investors that the biotech sector could one day become another object of pride for the nation, along the lines of the information technology industry.

Last month, for example, the legislature passed the Biotech and New Pharmaceutical Development Act (生技新藥產業發展條例) to help develop the industry and increase the nation's visibility and competitiveness.

Then came the news that the US firm Genentech Inc might set up a research joint venture at the Hsinchu Biochemical Science Park to develop AIDS treatments, with Taiwanese-American researcher David Ho (何大一) heading the effort, and Hon Hai Precision Industrial Co chairman Terry Gou (郭台銘) perhaps donating NT$100 billion (US$3 billion) to fund cancer research by scientists in Taiwan and China.

Investors were also encouraged by news that the government would spend NT$12.1 billion on infrastructure in the proposed Nangang Biotech Park in Taipei and establish a US$1 billion biotech joint venture with foreign investors, with Taiwan owning a 40 percent stake.

Granted, there is consensus among the government, industry and academia that the nation must shift from traditional labor-intensive manufacturing to capital-intensive biotech.

Academia Sinica even praised the enactment of the new law as a "turning point for Taiwan" and said it hoped to see the biotech sector become the nation's next star industry. But there are a number of hurdles to overcome.

One problem is whether Taiwanese companies have sufficient funds to develop new drugs. Most local firms are much smaller than their foreign rivals. Moreover, bringing a new drug to the market can take a company one to two decades and cost hundreds of millions of dollars.

Companies that intend to market a new drug must go through a complex, time-consuming and very expensive process, including the initial experimental study, three phases of clinical trials and a phase VI clinical study to monitor a drug's effects during a post-marketing period.

If a new drug does reach the market, the company could profit by licensing the technology. If not, the whole endeavor could end up as a waste of money endangering the very survival of the company.

On a positive note, the new law provides more tax exemptions to companies interested in biotech development. As much as 35 percent of a company's investment in R&D and personnel training will be exempted from business tax for a period of five years.

But that is not enough. The government must also provide an environment that is conducive to attracting scientists from around the world, as international collaboration is vital. Absent these, the nation will lag far behind neighbors including South Korea, Singapore, China and India.

Known for its entrepreneurial spirit and blessed with a vast pool of biotech and pharmaceutical talent, Taiwan faces a golden opportunity through outsourcing.

But are the government and companies ready to compete internationally for this US$800 billion market? Are potential investors?
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